To view the PDF file, sign up for a MySharenet subscription.

TELKOM SA SOC LIMITED - Group Abridged Annual Results for the year ended 31 March 2023

Release Date: 13/06/2023 07:05
Code(s): TKG TL29 TL33 TL31 TL30 TL28 TL32 TL25 TL26     PDF:  
Wrap Text
Group Abridged Annual Results for the year ended 31 March 2023

Telkom SA SOC Ltd 
(Registration Number 1991/005476/30) 
JSE share code: TKG 
JSE bond code: BITEL
ISIN: ZAE000044897
(Telkom, the Company or the Group)

Group Abridged Annual Results for the year ended 31 March 2023

Group salient features

- Revenue marginally up by 0.9% to R43 138 million
- EBITDA* down 19.8% with EBITDA margin* at 22.1%
- HEPS* and BEPS* down 76.6% and 86.8% to 134.6 cents and 71.0 cents per share respectively
- Mobile service revenue up 1.8% to R17 819 million
- Mobile customer base up 7.8% to 18.3 million subscribers
- FTTH connectivity rate at 47.4%
- IT revenue up 13.7% to R6 371 million

The year was characterised by unprecedented levels of loadshedding, constrained consumer spending, and dynamic
competition against the backdrop of a sluggish economy with persistent inflationary pressures.

As we continued to manage the transition to next-generation technologies, Group performance was under pressure from a
pronounced reduction in legacy revenues for the year. Despite this, revenue grew marginally. However, the incremental
costs of loadshedding reduced overall profitability, notwithstanding our efforts to manage operating costs.

Competition intensified in the mobile, fibre and IT services businesses. In response, we have embarked on a Group-wide
cost transformation journey to return the Group's profitability to above 25% in the medium term while driving revenue
growth in ever-evolving markets.

Performance overview

Revenue was marginally up by 0.9% to R43 138 million despite challenging trading conditions as our mobile and broadband
strategies continued bearing fruit. The migration of revenues from legacy to newer technologies, our investment in the
Mobile post-paid base to drive higher annuity revenue, and the impact of sustained loadshedding put pressure on our
operating costs. Normalised Group EBITDA* decreased by 19.8% excluding a R1 065 million provision for restructuring
costs. Normalised HEPS* and BEPS* dropped by 76.6% to 134.6 cents and by 86.8% to 71.0 cents, respectively.

Openserve saw growth across its next-generation data-led products, now representing close to 70% of its revenue base,
as it continued the journey to transform its revenue mix. Fixed-data next-generation revenue grew by 10.2% driven by
increased rollout of fibre and healthy growth in carrier services and enterprise services, contributing to Openserve's
leadership in providing open-access connectivity across South Africa.

However, performance was limited by pricing gaps between new-generation business and legacy business, as declines in
fixed-voice and legacy revenues accelerated during the year. Revenue declined by 4.0% to R12 897 million. Although
costs were well managed and grew by less than inflation, significant increases in backup power due to unreliable energy
supply put pressure on profitability. Openserve continued to expand its fibre footprint across all channels and
increased the number of homes passed with fibre by 23.9%, surpassing the 1 million homes mark. Homes connected advanced
by 26.7% to 47.4% and high-capacity carrier connectivity to base stations increased by 5.1% while enterprise market
connectivity grew by 2.5%. Openserve's investment in upgrading its existing fibre nodes, and an undersea cable
partnership with Google that gives it access to 12 Tbps of capacity, will further enhance Openserve's position as the
leading provider of high-speed connectivity in South Africa.

Overall revenue for Telkom Consumer was stable at R25 673 million. Revenue growth of 4.0% for Mobile operations and a
14.8% upswing in handset and equipment sales revenue were offset by the planned decline in traditional copper-based
voice services, which now represent a reduced 5.8% of total external revenues.

Mobile service revenue growth of 1.8% resulted from the expansion of our total customer base, which grew pleasingly by
7.8% to 18.3 million customers at a blended average revenue per user (ARPU) of R86, driven by our competitive customer
value propositions. Our post-paid strategy paid off as our customer base advanced by 11.0% to reach the 3.0 million
mark at an ARPU of R201. Our pre-paid base also continued growing by 7.2% to reach 15.3 million at an ARPU of R64. We
continued to extend our network footprint, launching our 5G services and effectively utilising the newly procured
spectrum, with a particular emphasis on the low-frequency band (800 MHz), to enhance coverage of our LTE services. This
benefited our mobile broadband subscriber base, which grew 9.2% to 11.6 million, representing 63.7% of our total mobile
base now using wireless broadband.

BCX had a challenging year but managed to maintain stable revenue levels at R14 252 million. Performance was driven by
9.1% growth in the IT business, which was offset by declines in the Converged Communications business. The IT business
growth was largely due to double-digit revenue growth in the hardware and software business, albeit at lower margins.
The Converged Communications business continued to be impacted by migration to next-generation technologies and robust
competition in the market. BCX is bolstering its skills and capabilities to support and guide its customers in
transitioning to cloud-based solutions and adopting new business models requiring modern ICT solutions.

Our masts and towers business, Swiftnet, continued commercialising its productive portfolio and saw marginal revenue
growth of 0.9% to R1 304 million, driven by construction of 66 additional towers and eight new in-building coverage
solutions (IBS) sites. Continued modernisation by mobile network operators (MNOs) on our sites, coupled with new base
station sites and the deployment of 5G by our clients, grew revenue from continuing customers by 10.3%, mitigating the
impact of terminations and decommissioning by two customers. After launching its first 5G outdoor Distribution Antenna
System (oDAS) small cell sites, for future site deployments in support of our customers' 5G rollout plans, Swiftnet
successfully tested the technical capability of our power-as-a-service (PaaS) solution. Swiftnet's EBITDA margin
remains healthy at 68.8%.

Gyro advanced property development planning activity for select development opportunities. This attracted interest
which resulted in Gyro concluding non-binding memoranda with property development investment partners for the execution
of the development projects. The intent is to commence construction for some projects during the new financial year.

Significant market changes and economic factors, including accelerated loadshedding, low economic growth and a high
interest rate environment, coupled with fast-evolving technologies, have had an adverse effect on the Group. These in
line with the requirements of assessing and testing for impairment as per IAS 36 (Impairment of Assets), resulted in an
impairment of R13 017 million (excluding tax effects) in respect of two of the Group's cash-generating units, Openserve
and Telkom Consumer. The impairment is a non-cash adjustment and does not impact the Group's EBITDA, has no impact on
Telkom's cash position, and affects neither the Group's compliance with debt covenants nor its ability to fund its
capital expenditure programme.

Group revenue maintained

Group revenue increased marginally by 0.9% to R43 138 million, driven by a decrease in fixed and IT service revenue due
to the challenging operating environment and the decline in the legacy fixed business as customers migrated to modern
technologies such as fibre and LTE. This was offset by an increase in mobile handset and IT hardware and software
sales, which are at lower margins, and a 1.8% increase in mobile service revenue.

EBITDA impacted by higher handset costs and operational expenses

Group EBITDA* was down 19.8% at R9 552 million, and the EBITDA margin* contracted by 5.8 percentage points (ppts) to
22.1%. This was mainly attributable to a 25.5% increase in our cost of handset and equipment, mainly due to higher
mobile handset sales of 14.8% and the increase in IT hardware and software revenue of 65.8%.

Operating expenditure (opex)* increased by 7.3% largely impacted by accelerated loadshedding and an average Group-wide
salary increase of 6.0%, which was effective from 1 April 2022. Tough economic conditions further contributed to the
56.3% increase in impairment of receivables.

Mobile cost to serve deteriorated slightly by 0.7 ppts to 28.4% compared to the prior year, impacted by accelerated
loadshedding and the increase in costs associated with the post-paid market, such as distribution channel costs. This
was mitigated by optimising roaming costs as we maintained stringent roaming traffic thresholds and migrated traffic to
our network, supported by ongoing network investment.

Although improved in the second half, FCF** was under pressure mainly due to the impact of mobile post-paid sales on
working capital

Free cash flow (FCF)** weakened to negative R2 722 million (FY2022: negative R2 080 million), primarily as a result of
the 45.0% decrease in cash generated from operations before dividend paid, impacted by the R3 218 million decline in
profit before tax* compared to the prior year. This was partially offset by a 17.6% decrease in cash paid for capex.

Regulatory developments


The Independent Communications Authority of South Africa (ICASA) started the second spectrum licensing process
(auction) by publishing an Information Memorandum (IM) in August 2022 soliciting comments on potential frequency bands
to be included in the licensing process. The IM containing all necessary auction-related information (spectrum bands,
caps, reserve prices, obligations, etc.) has not yet been published. It is anticipated that more than 200 MHz of new
spectrum will be on offer in the second auction, including the unsold 800 MHz spectrum lot. In terms of the settlement
agreement between ICASA and Telkom reached in April 2022, ICASA will consider the spectrum holdings emanating from the
previous auction, including the imbalances in the sub 1 GHz band, and the impact of the auction on competition in
designing the next auction. ICASA further stated that it would conduct an inquiry into a secondary market for spectrum.


FY2023 was a challenging year, with unexpected additional cost pressures caused by loadshedding amid an already
strained economy. The impact of continued migration to newer technologies was felt across most of our businesses, and
with increasing competition resulting in downward pricing pressure in the market, we launched our cost transition
programme to mitigate this impact and rebase our operating costs to improve profitability in the medium term. In the
last quarter of the year, we launched a labour consultation process aimed at restructuring the organisation to meet
future demands. The Openserve and BCX businesses were the most impacted in the Group. This process is largely complete
and has realised its intended goal. The benefits of this restructuring will materialise partially in FY2024, with the
full impact expected from FY2025 onwards.

While we did not meet certain of our financial framework criteria, the resulting revenue growth at 0.9% for the year
was masked by pronounced declines in legacy revenue in FY2023. As the impact of these declines decrease in FY2024,
FY2025 and beyond, the returns on our historical and ongoing investments in new technologies will become more apparent.

Along with the cost transformation journey, we aim to improve our EBITDA margin to historical levels of around 25% in
the medium term. While we rebase our cost base in FY2024, all business units have also been tasked with driving
top-line growth while simultaneously evolving their business models to drive the future sustainability of Telkom.

We expect Telkom Mobile to continue growing its customer base in line with the industry. Openserve will continue
driving growth of next-generation products and services with a focus on monetising its network and exploring
diversification opportunities. BCX's recent strategic acquisitions and partnerships to bolster its skill capabilities
will enhance its overall proposition, providing more value to clients. Swiftnet will continue increasing tenancies on
its existing portfolio, acquiring sites and constructing new towers in line with MNO demand, actively enabling 5G
rollout in South Africa, and bolstering its offering with power solutions to help customers maintain network

Telkom remains committed to realising value

Telkom continues to consider its options to maximise value for shareholders, premised on Telkom's market capitalisation
not reflecting its intrinsic value. While interest remains for the masts and towers business and fibre business, we
will consider the continued interest in these assets carefully, with the goal of realising the best return for
shareholders. In the meantime, we have future growth plans in place for these assets and will continue operating them
for the benefit of the Group.

Resumption of dividend policy postponed

FY2023 marks the final year of the three-year dividend suspension period. The Board has concluded that in light of the
Group's cash position and the current economic environment, the resumption of a dividend should be postponed for at
least another year. While we are committed to returning cash to shareholders in the medium term, we consider it prudent
to first strengthen our cash position as we navigate the Telkom cost transformation journey along with market and
economic conditions.

                                        Reported         Pro forma
                                           March             March            March
                                            2023              2023             2022      Variance
Underlying financial performance              Rm                Rm               Rm             %
Gross operating revenue                   43 138            43 138           42 756           0.9
EBITDA*                                    8 487             9 552           11 908         (19.8)
EBITDA margin (%)*                          19.7              22.1             27.9          (5.8)
Capex                                      7 401             7 401            7 484          (1.1)
FCF**                                     (2 722)           (2 722)          (2 080)         30.9
BEPS (cents)*                           (2 058.9)             71.0            536.6         (86.8)
HEPS (cents)*                              (25.8)            134.6            575.3         (76.6)
Net debt** to EBITDA* (times)                2.0               1.8              1.2           0.6
Dividend                                       -                 -                -             -
* EBITDA and HEPS excludes the impact of the restructuring cost of R1 065 million and the tax impact of R288 million on
  profit after tax and BEPS further excludes the impact of the R13 017 million impairment charge with the related tax
  impact of R3 477 million.

** This is a non-defined IFRS measure.

Mvuleni Geoffrey Qhena 

Serame Taukobong 
Group Chief Executive Officer

Dirk Reyneke 
Group Chief Financial Officer

13 June 2023

Nedbank Corporate and Investment Banking, a division of Nedbank Limited

Pro forma financial information: The pro forma financial information has been prepared excluding the impact of
voluntary severance package (VSP), voluntary early retirement package (VERP) costs and S189 costs, the impairment of
assets charge in the current year and the related tax impact on results and the write-up of invested capital of BCX and
Gyro to fair value (the "pro forma adjustments"). This constitutes pro forma financial information to the extent that
it is not extracted from the segment disclosure included in the Telkom audited consolidated abridged financial
statements for the year ended 31 March 2023. This pro forma financial information has been presented to eliminate the
impact of the pro forma adjustments from the consolidated financial results for the year ended 31 March 2023 to achieve
a comparable period-on-period analysis and show the underlying performance of the business. The pro forma adjustments
were determined in terms of the group accounting policies disclosed in the audited consolidated abridged financial
statements for the year ended 31 March 2023. Due to its nature, the pro forma financial information is for illustrative
purposes only and may not fairly present Telkom's results of operations. The pro forma financial information for the
year ended 31 March 2023 has been presented on a consistent basis with the pro forma financial information published
for the year ended 31 March 2023. The pro forma financial information is the responsibility of the directors.

Further information: The Telkom audited consolidated abridged financial statements for the year ended 31 March 2023
contained in the Telkom SA SOC Ltd Group Abridged Annual Results for the year ended 31 March 2023 are prepared in
accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, and the requirements of
the Companies Act applicable to summary financial statements. The Listings Requirements require abridged reports to be
prepared in accordance with the framework concepts and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a
minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the
preparation of the Telkom annual financial statements for the year ended 31 March 2023 from which the Telkom audited
consolidated abridged financial statements for the year ended 31 March 2023 were derived are in terms of IFRS and are
consistent with those accounting policies applied in the preparation of the previous consolidated annual financial
statements. The short-form announcement is a summary of the information in the Telkom full announcement for the year
ended 31 March 2023 and does not contain full or complete details.

This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. Telkom SA SOC Ltd
Group Abridged Annual Results for the year ended 31 March 2023 is available on the issuer's website, at the issuer's
offices and upon request. The directors take full responsibility and confirm that this information has been correctly
extracted from the underlying report. This announcement is itself not audited but is extracted from the underlying
audited information.

The Telkom audited consolidated abridged financial statements for the year ended 31 March 2023 have been audited by
PricewaterhouseCoopers Inc. and SizweNtsalubaGobodo Grant Thornton Inc., who expressed an unqualified opinion thereon.
The joint auditors also expressed an unqualified opinion on the annual financial statements from which the Telkom
audited consolidated abridged financial statements for the year ended 31 March 2023 were derived.

A copy of the auditor's report on the Telkom audited consolidated abridged financial statements for the year ended 31
March 2023 and of the auditor's report on the Telkom annual financial statements for the year ended 31 March 2023 are
available for inspection at the company's registered office, together with the annual financial statements identified
in the respective auditor's reports, which sets out key audit matters and the basis for its unqualified opinion is
available at:

The pro forma financial information in the Group Abridged Annual Results for the year ended 31 March 2023
has been reviewed by the Group's joint independent external auditors and who issued reasonable assurance report
thereon, prepared in terms of ISAE 3420 which is available on

This short-form announcement is the responsibility of the Directors and any investment decisions should be based on
consideration of Telkom's full announcement released on SENS for the year ended 31 March 2023 published on the JSE's
website on Tuesday, 13 June 2023 and also available on Telkom's website at:

The Telkom audited consolidated abridged financial statements for the year ended 31 March 2023 are available on the
Company's website at: and on the JSE's website at:

The Telkom annual financial statements for the year ended 31 March 2023 are furthermore available for inspection at the
Company's registered address and the offices of the JSE sponsor (Nedbank Corporate and Investment Banking, a division
of Nedbank Limited) during office hours at no charge to shareholders. Copies of the Telkom annual financial statements
for the year ended 31 March 2023 may be requested i.e. by emailing contact name/email address. The distribution of the
Telkom annual report for the year ended 31 March 2023 as well as the notice of AGM will follow and will be announced on

Date: 13-06-2023 07:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story